The Influence of Social Responsibility Practices on Tax Planning: An Empirical Study for Companies Listed on Euronext Lisbon

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The thesis analyzes the impact of corporate social responsibility, company size, return on investment and financial leverage on corporate tax planning of companies listed on Euronext Lisbon through multiple linear regression models. The thesis is rich in findings, the topic is relevant and the language is fluent. However, the following problems remain:

Problem1: The abstract of the dissertation states, "Empirical studies show evidence that the social responsibility practices advocated by a company can influence its tax planning strategies." However, the conclusion of this study is that CSR practices have no effect on tax planning. It is recommended that the authors remove this sentence from the abstract to avoid misinterpretation by the readers.

Problem2: The authors mention in the introduction that the sample used in the paper is 30 companies listed on Euronext Lisbon, however in section 3.1 the sample becomes 39 companies. Could the authors please clarify the sample size used in the paper?

Problem3: Problems with the structure of the paper. The author mentions in the last paragraph of the introduction that the research hypotheses are listed in section 3, however, the author actually lists the research hypotheses at the end of section 2. It is recommended that the authors further clarify the organization of the paper.

Problem4: The hypothesis formulation section of the thesis repeats the discussion of the related research on the impact of return on investment (ROA) on corporate tax planning, thus leading to the formulation of hypotheses 6 and 7 which are not related to the analysis in the previous paragraph.

Problem5: In the Results and Discussion section of the paper, it is mentioned that the company's "current ETR" and "Cash ETR" are equivalent to 18.01% and 18.97% of the company's ROA. However, according to the formula for calculating the dependent variable listed in Table 2, the "current ETR" and "Cash ETR" of the company should be equivalent to 18.01% and 18.97% of the company's EBT. We suggest the authors to correct this.

Problem6: According to the empirical results of the paper, six of the seven hypotheses proposed by the author above are rejected, so it is suggested that the author directly change the hypotheses to unaffected and add relevant theoretical analysis to support the author's conclusion.

Comments on the Quality of English Language

Minor editing of English language required

Author Response

Journal: IJFS (ISSN 2227-7072)

Manuscript ID: ijfs-3039440

The influence of social responsibility practices on tax planning: an empirical study for companies listed on Euronext Lisbon

We are thankful for the insightful feedback and comments on the earlier version of our manuscript, as it helped us to improve our paper in several ways. Below are the responses to each comment and changes are highlighted in yellow in the paper.

We have done our best to incorporate all comments and suggestions. Please find below our responses to the reviewers’ comments point-by-point.

Reviewer 1

Problem1: The abstract of the dissertation states, "Empirical studies show evidence that the social responsibility practices advocated by a company can influence its tax planning strategies." However, the conclusion of this study is that CSR practices have no effect on tax planning. It is recommended that the authors remove this sentence from the abstract to avoid misinterpretation by the readers.

The sentence: “Empirical studies show evidence that the social responsibility practices advocated by a company can influence its tax planning strategies” was removed from the abstract.

Problem2: The authors mention in the introduction that the sample used in the paper is 30 companies listed on Euronext Lisbon, however in section 3.1 the sample becomes 39 companies. Could the authors please clarify the sample size used in the paper?

In section 3.1 we clarify: “The final sample was 30 companies, 9 companies were excluded.”

Problem3: Problems with the structure of the paper. The author mentions in the last paragraph of the introduction that the research hypotheses are listed in section 3, however, the author actually lists the research hypotheses at the end of section 2. It is recommended that the authors further clarify the organization of the paper.

In fact, the hypotheses are listed in section 2. WE correct that information in the end of the introduction.

Problem4: The hypothesis formulation section of the thesis repeats the discussion of the related research on the impact of return on investment (ROA) on corporate tax planning, thus leading to the formulation of hypotheses 6 and 7 which are not related to the analysis in the previous paragraph.

In fact, the description of the return on assets variable was repeated. The text relating to hypothesis 7 has been deleted and the wording of hypotheses 5 and 6 has been readjusted.

Problem5: In the Results and Discussion section of the paper, it is mentioned that the company's "current ETR" and "Cash ETR" are equivalent to 18.01% and 18.97% of the company's ROA. However, according to the formula for calculating the dependent variable listed in Table 2, the "current ETR" and "Cash ETR" of the company should be equivalent to 18.01% and 18.97% of the company's EBT. We suggest the authors to correct this.

This information was correct in results and discussion section: “to 18.01% and 18.97% of a company’s ETR”.

Problem6: According to the empirical results of the paper, six of the seven hypotheses proposed by the author above are rejected, so it is suggested that the author directly change the hypotheses to unaffected and add relevant theoretical analysis to support the author's conclusion.

The literature review section and the presentation and discussion of the results indicate empirical studies in which it was also not possible to assess the influence of variables on tax planning.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

The study on the influence of social responsibility practices on tax planning activities of companies in Portugal represents a significant contribution to the understanding of contemporary business practices. The authors conducted a thorough analysis, covering the social, corporate, environmental, and economic components of corporate social responsibility (CSR) and their relationship with various tax planning metrics. The findings of the study provide interesting insights, showing no significant correlation between CSR components and tax planning. The use of different tax planning measures, such as Current ETR, Cash ETR, and GAAP ETR, is particularly valuable as it offers a more comprehensive understanding of the issue. However, to enhance the credibility of the conclusions, the authors could have supported their results with more detailed numerical data and statistical indicators. This would allow readers to better grasp the extent and nature of the identified relationships. Additionally, it would be beneficial to include specific recommendations for future research, as well as practical advice for companies aiming to improve their tax practices within the context of social responsibility. This could significantly increase the practical value of the work and promote broader implementation of the findings in business practices.

Author Response

Journal: IJFS (ISSN 2227-7072)

Manuscript ID: ijfs-3039440

The influence of social responsibility practices on tax planning: an empirical study for companies listed on Euronext Lisbon

We are thankful for the insightful feedback and comments on the earlier version of our manuscript, as it helped us to improve our paper in several ways. Below are the responses to each comment and changes are highlighted in yellow in the paper.

We have done our best to incorporate all comments and suggestions. Please find below our responses to the reviewers’ comments point-by-point.

Reviewer 2

The study on the influence of social responsibility practices on tax planning activities of companies in Portugal represents a significant contribution to the understanding of contemporary business practices. The authors conducted a thorough analysis, covering the social, corporate, environmental, and economic components of corporate social responsibility (CSR) and their relationship with various tax planning metrics. The findings of the study provide interesting insights, showing no significant correlation between CSR components and tax planning. The use of different tax planning measures, such as Current ETR, Cash ETR, and GAAP ETR, is particularly valuable as it offers a more comprehensive understanding of the issue.

However, to enhance the credibility of the conclusions, the authors could have supported their results with more detailed numerical data and statistical indicators. This would allow readers to better grasp the extent and nature of the identified relationships.

In order to provide more detailed statistic information, table 3 - Pearson correlation coefficients were inserted and we add a paragraph with information about the coefficient of determination.

“Table 3 provides Pearson correlation coefficients considering and dependent variable Current ETR. Pearson's correlation makes it possible to check the intensity and direction of the linear correlation/association between the variables. Thus, in the sample under study, there are moderate correlations between current ETR and ROA (coefficient of -0.277).

There are also moderate correlations between Social CSR and ROA (coefficient of -0.413) and Social CSR and company size (coefficient of 0.426). There is a strong correlation between Environmental CSR and company size (coefficient of 0.602), Environmental CSR and Social CRS (coefficient of 0.759), Economic CSR and Social CRS (coefficient of 0.685), Economic CSR and Environmental CRS (coefficient of 0.735).

Consequently, there are no strong correlations between the independent variables that could influence the results obtained.

Table 3. Pearson correlation coefficients.

The significance levels are indicated by * and ** which represent the 5% and 1% level, respectively.”

Additionally, it would be beneficial to include specific recommendations for future research, as well as practical advice for companies aiming to improve their tax practices within the context of social responsibility. This could significantly increase the practical value of the work and promote broader implementation of the findings in business practices.

We have added a few paragraphs to indicate the main limitations of the work, the practical implications and a suggestion for future research:

In our opinion, this study has two particular limitations. The first refers to the size of the sample, with a final number of observations of 51. It would be advisable to increase the number of observations and the time horizon in the future. The second concerns the manual collection of information on the different components of CSR. This analysis could lead to some subjectivity in the content analysis. We also believe that many companies are not yet concerned with disclosing some aspects of CSR that they actually practice. This limitation could be overcome if specific databases existed in Portugal with information on companies' social responsibility practices, as is the case in other countries (e.g. the KLD or VIGEO EIRIS databases).

This research has highlighted the importance of disclosing CSR practices and ensuring that companies do not miss out on the tax benefits associated with good CSR practices. The conclusion that the different components of CSR do not influence the level of tax planning may be due to the low use of the tax benefits in force.

A suggestion for future research is to carry out a new study for the Portuguese market after the Covid 19 pandemic period, which can be compared to ours and which shows the differences between pre- and post-pandemic.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

The paper explores the impact of CSR practices on tax planning through multiple linear regression modeling with an unsampled sample of 30 companies listed on Euronext Lisbon. However, the following problems still exist:

 1. The thesis lists many studies on CSR and tax planning in the introduction and literature review, and it is obvious that the studies on CSR and tax planning have obtained different or even opposite conclusions, so can the author compare with the existing studies and then clarify the necessity or significance of the research in this thesis? Or what is the superiority of this dissertation study?

2. The hypotheses of the thesis are not rigorously formulated. The author simply lists the different results of some related studies before formulating the hypotheses, and some of the findings are contradictory, which does not support the author's hypothesis of certainty, and it is suggested that the author should further improve the hypotheses. In addition, in the introduction or the discussion of the literature review, the authors did not mention the classification of CSR into several categories, so on what basis did the authors categorize social responsibility into the four categories of economic, environmental, social and corporate governance in their hypotheses?

3. the paper uses 30 companies listed on Euronext Lisbon in 2018-2019 as the original sample of the study, do the companies selected here include those already listed before 2018? If they are not included, the authors are requested to give the reasons in the text.

4.The paper uses the Ordinary Least Square method to estimate the impact of CSR practices and factors such as return on assets (ROA), company size (CS), and financial leverage (FL) on corporate tax planning, are the regression results robust? It is recommended that the authors conduct several robustness tests on top of the benchmark regression to enhance the persuasiveness of the paper.

5. The paper obtains rich conclusions through multiple linear regression, however, in the explanation of each conclusion, the authors just list the similar results of related studies, and it is suggested that the authors add their own explanations of the reasons for the related conclusions.

Comments on the Quality of English Language

Moderate editing of English language required

Author Response

Reviewer

The paper explores the impact of CSR practices on tax planning through multiple linear regression modeling with an unsampled sample of 30 companies listed on Euronext Lisbon. However, the following problems still exist:

1. The thesis lists many studies on CSR and tax planning in the introduction and literature review, and it is obvious that the studies on CSR and tax planning have obtained different or even opposite conclusions, so can the author compare with the existing studies and then clarify the necessity or significance of the research in this thesis? Or what is the superiority of this dissertation study?

Response

We added a justification on the Introduction with the reasons that sustain this study:

“This research contributes to the existing literature in this area of knowledge by providing an insight into this issue for Portuguese companies. Also, we use different metrics to compute tax planning variable developing different models for analysis. We examine separately the effect of four categories of CSR on tax planning.”

(Line 72)

2. The hypotheses of the thesis are not rigorously formulated. The author simply lists the different results of some related studies before formulating the hypotheses, and some of the findings are contradictory, which does not support the author's hypothesis of certainty, and it is suggested that the author should further improve the hypotheses. In addition, in the introduction or the discussion of the literature review, the authors did not mention the classification of CSR into several categories, so on what basis did the authors categorize social responsibility into the four categories of economic, environmental, social and corporate governance in their hypotheses?

Response

We added a justification on the Introduction with the reasons that sustain this study, as referred in last answer.

In fact, we miss the reference of CSR classification into the four categories of economic, environmental, social and corporate governance. So, we add the following paragraph in the literature review, refereeing different authors. The references were also added.

 “Different literature presents the classification of CSR into several categories as economic, environmental, social and corporate governance (Hoang, 2018; Kocmanová et al., 2016; Martins et al., 2023; Kocmanová & Šimberová, 2014; Laguir et al., 2015). In this study, this classification is applied.”  

(line 258)

Hoang, T. (2018), "The Role of the Integrated Reporting in Raising Awareness of Environmental, Social and Corporate Governance (ESG) Performance", Stakeholders, Governance and Responsibility (Developments in Corporate Governance and Responsibility, Vol. 14), Emerald Publishing Limited, Leeds, pp. 47-69.

Kocmanová, A., Pavláková Dočekalová, M., Škapa, S., & Širáňová, L. (2016). Measuring corporate sustainability and environmental, social, and corporate governance value added. Sustainability, 8(9), 945.

Kocmanová, A., & Šimberová, I. (2014). Determination of environmental, social and corporate governance indicators: framework in the measurement of sustainable performance. Journal of Business Economics and Management, 15(5), 1017-1033.

Martins, R.V., Santos, E., Eugénio, T. and Morais, A. (2023). Is foreign direct investment caring for sustainability? A look in African sub-Saharan countries. Sustainability Accounting, Management and Policy Journal. 14 (5), pp. 978-1001.

 The categories were adapted from Laguir et al. (2015) as mentioned in table 1.

3. the paper uses 30 companies listed on Euronext Lisbon in 2018-2019 as the original sample of the study, do the companies selected here include those already listed before 2018? If they are not included, the authors are requested to give the reasons in the text.

Response

The companies of the study were all the ones listed on the Euronext Lisbon stock ex-change between 2018 and 2019 on a total of 39 companies. We excluded the ones with a negative net profit and with negative income tax. Companies whose ETR was negative or had a value greater than 1 were also excluded from the analysis. The final sample was 30 companies. procedures are in line with other authors (Lanis & Richardson, 2012; Hoi et al., 2013; Laguir et al., 2015; Marta et al., 2019).

This explanation is detailed on item 3.1 Sample and Data collection.

As we chose the period begin in 2018, we did not check if the companies belong to the stock market in previous years. We adopt the same methodology as other authors.

4.The paper uses the Ordinary Least Square method to estimate the impact of CSR practices and factors such as return on assets (ROA), company size (CS), and financial leverage (FL) on corporate tax planning, are the regression results robust? It is recommended that the authors conduct several robustness tests on top of the benchmark regression to enhance the persuasiveness of the paper.

Response

In order to this comment, a paragraph regarding to the assumptions of regression model was inserted in chapter 4. Results and Discussion.

“The linear regression model obtained can only be used to infer functional relationships between tax planning and the independent variables if a number of assumptions are met, namely that the errors/residuals have a normal distribution with zero mean, constant variance and are independent and random, and that the independent variables are orthogonal, i.e. they are not correlated, or at most show weak correlations (Marôco, 2014). Thus, using the Kolmogorov-Smirnov and Shapiro-Wilk tests, the normal probability graph (QQ-plot of the residuals), the scatter diagram between the predicted values (standardized) and the residual values (standardized) and also the variance inflation factors (VIF) obtained for each of the independent variables, we concluded that the model's assumptions were met.”

(Line 614)

“This result may be due to the low variability of the tax planning variables supported by the low value of the standard deviation. This means that most of the companies in our sample have tax planning values close to the average. The result may derive from the set of indicators used to measure the social component of social responsibility insofar as these are not reflected in the companies' tax management policy.”

(Line 627)

5. The paper obtains rich conclusions through multiple linear regression, however, in the explanation of each conclusion, the authors just list the similar results of related studies, and it is suggested that the authors add their own explanations of the reasons for the related conclusions.

Response

We thank you for the comments and we agree with it. A paragraph with a settle of arguments for the achieved results was inserted in the end of chapter 4. Results and Discussion.

“The results we obtained may be the consequence of low variability of the tax planning variables supported by the low value of the standard deviation. This means that most of the companies in our sample have tax planning values close to the average. Another reason for the obtained results can derive from the set of indicators used for measure independent variable insofar as these are not reflected in the companies' tax management policy. It is possible that Portuguese tax system tax benefits or tax options do not contain a strong relation with the variables applied in the regression model or the possible benefits do not have a strong impact on financial statements. We cannot rule out the possibility that the official reports, specifically those of a non-financial nature, of the companies in our sample do not clearly and visibly reflect their position on sensitive issues.”

Line 687

Author Response File: Author Response.pdf

Round 3

Reviewer 1 Report

Comments and Suggestions for Authors

The authors answered all the questions.